Offshore Petroleum Amendment (Greater Sunrise) Bill 2007

Bills Digest no. 103 2006–07

Offshore Petroleum Amendment (GreaterSunrise) Bill 2007

WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.

Since 1967, offshore petroleum operations in Australia have been
regulated by Commonwealth / State / Territory 'mirror' legislation.
The principal Commonwealth legislation is the Petroleum
(Submerged lands) Act 1967 (The PSL Act). The PSL Act
will be replaced by the Offshore Petroleum Act 2006 (the
operative provisions of which are not yet in force) in the
reasonably near future, but the latter shares many of the main
governance and administrative features of the PSL Act.

Amongst these features are the entities known as the Joint
Authority and Designated Authority respectively. There is a Joint
Authority and Designated Authority for each of the State or
Territory offshore adjacent areas.(1) The Joint
Authority is the decision-maker in relation to the granting of
exploration permits, production and pipeline licences etc. The
Designated Authority has responsibility for the more day to day
administrative aspects of managing the offshore petroleum regime in
each offshore area. Joint Authorities consist of the relevant
Commonwealth Minister and the relevant State or Territory Minister,
with Designated Authorities consisting of the relevant State or
Territory Minister only. However, as explained below, the
governance arrangements for the Greater Sunrise offshore area are
different.

The Timor Sea between northern Australia and Timor-Leste
contains proven petroleum resources in the seabed and subsoil. The
Sunrise and Troubadour gas fields, which are collectively known as
Greater Sunrise , straddle the Australia/Timor-Leste Joint
Petroleum Development Area (JPDA), which was established in the
Timor Sea Treaty (2003). The Greater Sunrise field is estimated to
contain an estimated 295 million barrels of condensate and 8.4
trillion cubic feet (238 billion cubic metres) of
gas.(2) It is estimated that 20.1 per cent of Greater
Sunrise field (the Western Greater Sunrise area) lies within the
JPDA, while the remaining 79.9 per cent (The Eastern Greater
Sunrise area) lies in Australian waters.(3)

The joint venture partners for development of Greater Sunrise
are Woodside Energy (operator), Shell, Conoco Phillips and Osaka
Gas. Woodside has stated that the project is stalled until there is
legal, fiscal and regulatory certainty. Even if international
treaties regarding Greater Sunrise are finalised, Woodside and its
partners face further challenges in developing the field,
particularly as Timor-Leste is reportedly insisting that any LNG
plant built to support the Greater Sunrise field be located within
its borders.(4) Woodside has stated that while
transporting gas by pipeline to Timor-Leste is technically
feasible, it is commercially unattractive.(5)

The Greater Sunrise Unitisation Agreement (IUA) was signed by
Australia and Timor-Leste on 6 March 2003. The IAU provides a
framework for the development and exploitation of the petroleum
resources in the Sunrise and Troubadour fields. Note that the IAU
has not yet come into force.

Under the IUA, Timor-Leste s share of the Greater Sunrise field
is calculated by referencing the agreed formula that applies to the
sharing of the JPDA, giving Timor-Leste a 90 per cent share of the
petroleum resource. This means that Timor-Leste receives 90 per
cent of the 20.1 per cent of the Greater Sunrise field that lies
within the JPDA. Australia s share is the 10 per cent remainder of
the 20.1 per cent from the JPDA, and the 79.9 per cent of the
Greater Sunrise field outside the JPDA.(6) In effect,
this means that Timor Leste is entitled to approximately 18 per
cent of the royalty revenue from the Greater Sunrise field, and
Australia 82 per cent. However, should the Certain Maritime
Arrangements in the Timor Sea (CMATS) treaty (see below) come
into force, the revenue split will become 50/50.

Note that some elements of the IUA will be replaced by the
ratification of the Certain Maritime Arrangements in the Timor Sea
(CMATS) treaty later this year (see below).

Administration of the Western Greater Sunrise area is undertaken
by the Timor Sea Treaty
Designated Authority, a Commonwealth/Timor Leste body. This
area is not part of the offshore area for the Northern Territory
under the PSL Act. Governance arrangements for the Western Greater
Sunrise area were established under the Petroleum
(Timor Sea) Treaty Act 2003.

The Eastern Greater Sunrise area is also not part of the
offshore area for the Northern Territory under the PSL Act.
Accordingly, the Northern territory government is not represented
on the Designated and Joint authorities. The Greater Sunrise area
was severed from the Northern Territory offshore area by the
GreaterSunriseUnitisation Agreement
Implementation Act 2004. This legislative action was part of
the measures undertaken when the IUA was incorporated into the PSL
Act by the GreaterSunriseUnitisation
Agreement Implementation Act 2004. Note that while the Greater
Sunrise Unitisation Agreement Implementation Act was passed by
Parliament in 2004, the proclamation of commencement of Schedule 1,
Items 1-86 of the Act, was made on 7 February 2007. Therefore the
Commonwealth only became the Joint Authority for the Greater
Sunrise offshore area on 7 February 2007.

According to the second reading speech, due to unforseen
circumstances and competing priorities the severance of the Eastern
Sunshine area was not included when the PSL Act was rewritten and
renamed the Offshore Petroleum Act in 2006.(7)
However, as the operative provisions of the Offshore Petroleum
Act2006 are still to come into force, the PSL Act
has not yet been repealed and as such remains in operation. For
background on the Offshore Petroleum Act see the Bills
Digest:http://www.aph.gov.au/Library/pubs/bd/2005-06/06bd027.pdf

The Offshore Petroleum Amendment (Greater Sunrise) Bill 2007
seeks to have the IUA incorporated into the Offshore Petroleum
Act2006, in the same way that the IUA was
incorporated into the PSL Act in 2004 (see the Bills Digest for the
Greater Sunrise Unitisation Agreement Implementation Bill
2004:http://www.aph.gov.au/library/pubs/bd/2003-04/04bd108.htm).

In the second reading speech for this bill, the Parliamentary
Secretary to the Minister for Industry, Tourism and Resources, Hon.
Bob Baldwin MP, stated that the incorporation is a formality , as
the matter was debated in detail by the Parliament in
2004.(8)

A new treaty between Australia and Timor-Leste on Certain
Maritime Arrangements in the Timor Sea (CMATS), which was
signed on 12 January 2006, replaces some elements of the IUA. Under
CMATS, Australia and Timor-Leste will split the royalties from the
Greater Sunrise field 50:50, and set aside maritime boundary claims
for 50 years. Australia estimates its share of the royalties could
total $10 billion over the life of the field.(9)

The government tabled the CMATS treaty in the Senate on 6
February 2007. A short public hearing was held by the Joint
Standing Committee on Treaties on 26 February. The National
Interest Analysis (NIA) tabled with CMATS can be viewed
here. The NIA states in part:

No legislation is required to implement the
obligations of the CMATS Treaty at this stage. All of the
provisions can be implemented through executive and administrative
actions by the Government. Once production of Greater Sunrise
commences, appropriation legislation will be required in order to
transfer revenue to East Timor in accordance with Article 5.

The Parliament of East Timor began debating the treaty in
February 2007, with ratification expected in several months,
following public consultations.(10)

The bill was supported by the ALP. In the House of
Representatives, independents Mr Andren, Mr Katter and Mr Windsor,
and the Greens Mr Organ, voted against the bill.(11) In
the Senate, the Australian Democrats, the Greens and Senator Harris
(One Nation) voted against the bill.(12)

The Senate Economics Legislation Committee tabled a report on
the bill on 24 March 2004. Rather than commenting on technical
aspects of the bill, the Committee s report canvassed concerns
raised by some interest groups regarding the content of the Greater
Sunrise Unitisation Agreement and the means by which it was
negotiated.(13)

The East Timor Action Network (ETAN) opposed the IUA but has
given qualified support for the CMATS treaty, stating that it may
be the best deal available to Timor-Leste at the current time. See
http://www.etan.org.

As noted above, when the 2004 bill which incorporated the IUA
into the PSLA was debated, the ALP supported the bill. The Greens
and Australian Democrats did not support the bill. There have been
no recent statements from the Greens, Australian Democrats or
independent members about this proposed bill or the new CMATS.(if
any)

The bill refers to the Eastern Greater Sunrise area, which as
mentioned earlier, falls outside the Joint Petroleum Development
Area (JPDA), and the Western Greater Sunrise area, which falls
inside the JPDA. The JPDA is administered by the Timor Sea Treaty
Designated Authority, under the Timor Sea Treaty 2002.

Prior to the implementation of the Greater Sunrise
Unitisation Agreement Implementation Act 2004 (which occurred
on 7 February 2007), the Eastern Greater Sunrise area was jointly
administered by the Northern Territory and Commonwealth Governments
as it falls under the Northern Territory Offshore Area. Mirroring
the 2004 legislation, this bill redefines the Northern Territory
Offshore Area, and makes the administration of the Eastern Greater
Sunrise area the sole responsibility of the Commonwealth. The
Commonwealth Minister alone will discharge the duties of the Joint
Authority for the Eastern Greater Sunrise area. Usually, a Joint
Authority comprises both Commonwealth and a counterpart State or
Territory Minister.(14)

Item 10 replaces the existing definition of
offshore area , making a new Principal Northern Territory offshore
area (to be jointly administered by the Commonwealth and NT
governments); and the new Eastern Greater Sunrise offshore area, to
be solely administered by the Commonwealth (as explained above).
Items 3 and 11 provide further
clarification about the boundaries of these offshore areas.

Item 20 creates the new Greater Sunrise
Offshore Petroleum Joint Authority and ensures that the
Commonwealth-Northern Territory Offshore Petroleum Joint Authority
continues as the Joint Authority for the smaller Principal Northern
Territory offshore area. The Explanatory Memorandum states that
although the Greater Sunrise authority is called a Joint Authority
, all powers are to be vested in the responsible Commonwealth
Minister. The use of the term Joint Authority is merely a
legislative drafting device adopted to avoid the proliferation of
terms for entities which have essentially identical
functions.(15) In his second reading speech,
Parliamentary Secretary Baldwin stated that despite the separation
of Commonwealth and Northern Territory administration, in practice,
the Australian Government will work with the Northern Territory
Government on the day to day administration of the Greater Sunrise
resource .(16)

Item 26 amends existing subsection 48(1) of the
Act to clarify who may be a delegate of a Joint Authority. Under
current subsection. 48(1), a Joint Authority may delegate any or
all of its functions to 2 persons together . Item
26 replaces 2 persons together with the requirement that
the 2 persons must comprise (a) an APS employee at SES level; and
(b) an employee of a State or of the Northern Territory.
Items 27 and 28 ensure that delegations may
continue if there is a change in the identity of the holder of the
office of Joint Authority (ie the Minister), or a vacancy in the
office.

Items 61 to 66 ensure that project inspectors
for the Greater Sunrise area have all the standard powers of
inspectors under the Act.

The Greater Sunrise Offshore Petroleum Joint
Authority may consult with the Timor Sea Treaty Designated
Authority before exercising any power, or performing any function,
that is conferred on the Joint Authority under this Act or the
regulations.

This will enable adherence to the terms of the IUA, which
requires Australia and Timor-Leste to act in concert on matters to
do with the development of the Greater Sunrise unit
area.(17)Item 37 inserts a similar
clause relating to the Designated Authority for the Eastern Greater
Sunrise offshore area.

Under the Act, a person is not permitted to recover petroleum
unless they have a licence issued under the Act. Royalty payments
are also applied.

The bill inserts some new requirements for licence applicants,
to ensure consistency in the application processes for the
Australian jurisdiction and that overseen by the Timor Sea
Designated Authority, which is responsible for administration of
the JPDA. Items 45 and 46 insert
the additional requirements for licence applicants.

Item 49 inserts new section
145A, outlining consultation requirements before the
Greater Sunrise Offshore Petroleum Joint Authority may issue an
offer document for the grant of a production licence. Under new
section 145A, the Greater Sunrise Offshore Petroleum Joint
Authority must:

a) give notice to the Timor Sea Treaty Designated Authority that
it is considering granting a licence, together with copies of the
Join Venturers Agreement and Development Plan which accompanies the
licence application

b) approve a unit operator, the Joint Venturer s Agreement and
the Development Plan, and

c) be satisfied that the Timor Sea Treaty Development Authority
has approved the same unit operator, Joint Venturer s Agreement and
Development Plan for the development.

If the Joint Authority is not satisfied that the Timor Sea
Treaty Designated Authority has given the approvals mentioned
above, the Joint Authority must refuse to grant the licence to the
applicant (item 50).

The PSLA is to be repealed at the same time as Chapter 2 of the
new Offshore Petroleum Act 2006 comes into effect on a
date to be fixed by proclamation. The delayed implementation of the
Offshore Petroleum Act was to enable the States and Territories to
implement mirror legislation to administer their offshore areas.
Items 76 to 86 ensure the smooth operation of the
Joint Authorities after the repeal of the PSLA. Documents,
Designated Authorities, project inspectors etc. will continue to
function under the Offshore Petroleum Act.

Item 97 provides that the Governor-General may
make regulations in relation to transitional and consequential
matters. Item 97 (3) provides a broader power for regulations to be
made that, in the Minister s opinion, are necessary or convenient
for giving effect to any provision of the IUA, so long as they are
not inconsistent with any amendments made by the bill.

Concluding comments

As noted by the government, the main provisions of this bill
were debated in the Parliament in 2004. However since that debate
the relationship between Australia and Timor-Leste has changed,
given events in 2006 and the new CMATS treaty now in the process of
ratification.

The offshore adjacent area is the area that extends from 3
nautical miles seawards of each of the State or Territory s low
water mark out to a defined boundary on the continental shelf.

National Interest Analysis: Treaty between the Government of
Australia and the Government of the Democratic Republic of
Timor-Leste on Certain Maritime Arrangements in the Timor Sea, done
at Sydney on 12 January 2006, p. 3.

John Hartwell, evidence to the Joint Standing Committee on
Treaties, 23 June 2003, p. 72.

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